Australia’s coal supply response likely to lag

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Skills shortages and safety concerns could hamper Australia's ability to increase metallurgical coal exports in response to record prices, although its biggest producer BHP can ramp up production after mine and port maintenance over the past two months.

Australian metallurgical coal exports were down by 16.4pc in January-July 2021 compared with pre-pandemic 2019, taking just above 19mn t out of the seaborne market for those seven months, or 33mn t/yr. This was largely because of Beijing's informal ban on Australian coal imports, which has cut demand and forced prices to lows, in turn causing production cuts. It was also a result of safety issues that closed 11.5mn t/yr of capacity owned by Anglo American.

Prices for premium hard coking coal have more than tripled since early May and other metallurgical grades have at least doubled, but it may take some time for Australian suppliers to react and increase exports as they face major workforce shortages and tighter safety regulation.

Most of Australia's coking coal is sourced in Queensland, which has closed borders to both international and inter-state arrivals. This has made it extremely difficult to recruit additional workers at a time of growing competition from other mineral developments such as base metals and battery metals. Chief executives in the mining sector have indicated in a recent survey by the Queensland Resources Council that attracting skilled workers is their number one concern, up from a rank of 12th in the previous survey. Similar skills shortages have caused problems for iron ore producers in Western Australia.

At the same time, a fatality at the Crinum underground mine could create more safety concerns in Queensland and lead to delays in the restart of Anglo American's 5mn t/yr Grosvenor mine and the ramp-up of its 6.5mn t/yr Moranbah mine.

BHP expects to produce 70mn-78mn t on a 100pc basis in the 2021-22 fiscal year to 30 June through its BHP Mitsubishi Alliance (BMA) and BHP Mitsui Coal (BMC) joint ventures. It expects production to be weighted towards the second half of its financial year. But it has in the past shown capacity to surge exports through its Hay Point port if it does not see this as damaging to the seaborne market. Hay Point shipments were extremely weak in July, recovered somewhat in August and appear strong this month, according to initial shipping data.

The ship queue outside Hay Point and the adjacent port of Dalrymple Bay Coal Terminal (DBCT) is still below average at 19 vessels, unlike the more than 30 vessels outside of the New South Wales thermal coal port of Newcastle. This indicates that there may still not be demand for a surge in throughput from either port.

Trade flows have adjusted to the absence of China as buyer of Australian metallurgical coal, but possibly not enough to account for the 23mn t that China took in 2019 and the 32mn t it took in 2020, which could be contributing to the low ship queues.

Argus last assessed the premium hard low-volatile coking coal price at $392.50/t fob Australia on 21 September, up from $225.25/t on 20 August and $110.95/t on 11 May. It assessed the PCI price at $243.15/t fob Australia on 17 September, up from $108/t on 11 May.


By Jo Clarke

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